econlife - Throwback Thursday: Was Sears, Roebuck the First Amazon? by Elaine Schwartz

#TBT: Looking back, we can say that Sears, Roebuck & Co. was the first Amazon.



Sears, Roebuck and Amazon

If you were asked how 30% of all Americans had access to 100,000 items in their homes, you might think of Amazon. Instead, the year is 1900 and the seller is Sears, Roebuck & Co. From a population of 76 million, 20 million Americans received the Sears catalogue. Through Sears, households could have items ranging from dresses to plows to tombstones delivered directly to their doorstep. They could even order some groceries.

Sears and Bezos (Roebuck left the firm he helped to start in 1895, only four years after it began.):

Where are we going? To their prefabricated homes.

Mail Order Houses

Sears’s Houses

Just imagine an Ikea delivery with more pieces. The Sears “kit homes” were sent by train. Arriving in a boxcar, they included framing lumber, cedar, and shakes. From doors to doorknobs, they had big and little parts. Sears said we could assemble it all in 90 days or less. (I suspect that the 30,000 piece home took a bit longer.)

From Sears home catalog:

Each Sears Prefab style had a name. This was the Alhambra:

Sears even sold prefabricated schoolhouses:

The house though was only the beginning. From there, Sears had the furniture, the appliances, and most of what you needed to put in and on them. Then, they completed the picture by offering mortgages in 1911.

Amazon’s Houses

As we know, Amazon sells most of what we need in our homes. And, it also sells the houses.

Two of the homes sold by Amazon:

Our Bottom Line: Infrastructure

Yes, talented entrepreneurs started a Sears and an Amazon.

But then, each uniquely optimized recently created information and transportation infrastructures for their business model. Using their era’s innovations, Richard Sears and Jeff Bezos both figured out how we could shop from home. For example, the Sears catalogue was reputedly sized as slightly smaller than the Montgomery Ward Catalog. The reason? So you would stack it at the top. Similarly, the allure of Amazon Prime makes us go there first.

Most crucially though, Sears and Bezos knew how to deliver. Sears used the newly created (1896) rural free delivery U.S. Postal Service and the railroads. For Amazon, it has also been the US Postal Service and of course, the internet.

And then they made it so easy that we could not resist…even a house.

My sources and more: For all of the facts on the Sears mail order home, this 99% Invisible podcast is perfect. But if you want more (as did I) the NY Times and MarketWatch had some Sears history and Curbed, the Amazon houses.

Ideal for the classroom, econlife.com reflects Elaine Schwartz’s work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.

econlife - Throwback Thursday: When Google Was Just Google by Elaine Schwartz

#TBT: Today’s Google is the result of 270 acquisitions. Let’s look back at what it (and others like it) used to be and then forward to what we have now.


Google’s Growth Spurts

During the past 23 years, Google was first BackRub (very briefly), then Google (for close to 16 years), and now Alphabet. At first it was a unique search engine developed by two Stanford graduate students, Sergey Brin and Larry Page. Created in 1999, AdWords was an early idea that generated some of their first revenue. Five years later, slightly more than 19.6 million shares were sold publicly for $85 apiece through an IPO (Initial Public Offering).

An early homepage:

Since then, they’ve acquired 270 companies. Close to 63% of that total was for potential (and actual) competitors that included companies like Doubleclick (ads), YouTube (you know) and Waze (maps). Meanwhile 20% involved expanding into new areas like AI and robotics. The remainder is varied.

This NY Times graphic shows all of Google’s growth spurts. 2011 and 2014 were the most active acquisition years:

A Superstar Trend

As we look back to when Google was simply for search and now at its multiple identities, we see a trend in which fewer firms have more market power. Like Google, companies are getting larger. Goldman Sachs calls it the emergence of the superstars. According to Goldman Sachs research, the number of firms that trade in stock markets is down while their size is up. In 1996 there were 8000 listed firms; now there are closer to 4,000.

Our Bottom Line: Concentration

When economists talk about market power, they use the word concentration. In concentrated markets, there are fewer firms, they are large, they dominate sales, and they have some price making power. To quantify concentration, we can use a Herfindahl-Hirschman Index (HHI). The higher the HHI number, the greater the concentration. The Index can be based on different scales but typically the closer to 10,000, the greater the concentration.

Below you can see concentration from 20 industry groups for firms that are listed in the S&P. Tobacco is at the top while Interactive Media and Services are a close second:

If 10,000 is at the top of the the Herfindahl-Hirschman Index, then 10,000 equals a monopoly. To calculate the Herfindahl-Hirschman index number, we can square the market share of each firm and then add them together. So, if a company is the only competitor, then its sales are 100% of the industry. The square of 100 is 10,000. However, if you have 100 firms, each with 1% of the shipments in an industry (or the sales, or for banks, perhaps the deposits), the HHI is 100:

1² + 1² + 1² + 1² + 96 other 1² = 100

When the U.S. Department of Justice uses the HHI to evaluate a merger proposal, it considers less than 1500 competitive, 1500-2500 moderately concentrated, and more than 2500, highly concentrated. Thinking of Alphabet (and Facebook), you can see why “interactive Media and Services is so concentrated.

My sources and more: The NY Times column on concentration and a (gated) Goldman Sachs report created the perfect synergy. As a final step, you might want to learn more about the HHI in an article from the St. Louis Fed and from the Department of Justice guidelines.

Ideal for the classroom, econlife.com reflects Elaine Schwartz’s work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.